Research Programs

Employment Policy and Labor Markets

In 2001, the US economy entered a seventh consecutive year of expansion and unemployment rates were at 30-year lows. Yet, not all shared in the employment boom. Levy Institute research has found that between 1995 and 1999, only 217,000 jobs—of the more than 13 million created—went to the half of the population holding a high school degree or less; the remaining jobs went to those with at least some college education. Today, in an ever-tightening economy, there are almost nine million unemployed—5.6 percent of the labor force—and four job seekers for each available job. In addition, there are roughly 10 million full-time workers whose wages place them at or below the official poverty line. Clearly, there is room for improvement on the jobs front.

In response to this problem, Levy Institute scholars have proposed a full-employment, or job opportunity, program that would employ all who are willing to work and increase flexibility between economic sectors, thereby lowering the social and economic costs of unemployment. This program is preferable to proposed alternatives such as a reduction of the workweek or employment subsidies, neither of which is sure to raise employment—and both may have serious side effects. Other labor market policies studied by Levy Institute scholars include the effects of technology on earnings, and the effects of an increase in the minimum wage on hiring practices and earnings.

Program Publications

This paper examines two key aspects of unemployment—its propagation mechanism and socioeconomic costs. It identifies a key feature of this macroeconomic phenomenon: it behaves like a disease. A detailed assessment of the transmission mechanism and the existing pecuniary and nonpecuniary costs of unemployment suggests a fundamental shift in the policy responses to tackling joblessness. To stem the contagion effect and its outsized social and economic impact, fiscal policy can be designed around two criteria for successful disease intervention—preparedness and prevention. The paper examines how a job guarantee proposal uniquely meets those two requirements. It is a policy response whose merits include much more than its macroeconomic stabilization features, as discussed in the literature. It is, in a sense, a method of inoculation against the vile effects of unemployment. The paper discusses several preventative features of the program.

Demographics or Lack of Jobs?

Aging demographics, “social shifts,” and other supply-side and institutional factors have commonly been blamed for the fall in the US labor force participation rate. However, depressed labor force participation for prime-age workers is likely due to a combination of insufficient aggregate demand, weak job creation, and stagnant wages—all of which have been persistent problems over the past three or four decades. Although insufficient aggregate demand is the main problem, general “Keynesian” pump priming is not the answer. Stimulus needs to take the form of targeted job creation to tighten labor markets for less-skilled workers.

Flavia Dantas and L. Randall Wray argue that the emerging conventional wisdom—that the US economy has reached full employment—is flawed. The unemployment rate is not providing an accurate picture of the health of the labor market, and the common narrative attributing shrinking labor force engagement to aging demographics is overstated. Instead, falling prime-age participation rates are the symptom of a structural inadequacy of aggregate demand—a problem of insufficient job creation and stagnant incomes that conventional public policy remedies have been unable to address. The solution to our long-running secular stagnation requires targeted, direct job creation for those at the bottom of the income scale.

By Claire Connelly

ABC News, January 18, 2017. All Rights Reserved.

Creating a universal basic income as a means of addressing unemployment and productivity problems has become the topic du-jour as workers become increasingly separated from the means of production, with even modest salaries failing to cover the cost of living.

Consequently, Australian taxpayers have had to take on a greater burden of debt to support themselves....

A Distributional Analysis of the Care Economy in Turkey

This paper examines the aggregate and gender employment impact of expanding the early childhood care and preschool education (ECCPE) sector in Turkey and compares it to the expansion of the construction sector. The authors’ methodology combines input-output analysis with a statistical microsimulation approach. Their findings suggest that the expansion of the ECCPE sector creates more jobs and does so in a more gender-equitable way than an expansion of the construction sector. In particular, it narrows the gender employment and earnings gaps, generates more decent jobs, and achieves greater short-run fiscal sustainability.

In this policy note, Research Scholar Fernando Rios-Avila and Gustavo Canavire-Bacarreza, Universidad EAFIT, observe that immigration in the United States has a small but statistically significant impact on the labor market behavior of native-born unemployed workers. Their chances of transitioning from unemployment to employment are not affected by the share of immigrants in their job markets, but the native-born unemployed are more likely to leave the labor force when living in areas with a higher relative concentration of immigrants. Three additional results of the study shed light on what might be contributing to this higher rate of labor market exit, with each pointing to the potential role of expectations in creating a discouraged worker effect among the native-born unemployed in high-immigration states.

The Effect of Immigration on Unemployment Transitions of Native-born Workers in the United States

Although one would expect the unemployed to be the population most likely affected by immigration, most of the studies have concentrated on investigating the effects immigration has on the employed population. Little is known of the effects of immigration on labor market transitions out of unemployment. Using the basic monthly Current Population Survey from 2001–13 we match data for individuals who were interviewed in two consecutive months and identify workers who transition out of unemployment. We employ a multinomial model to examine the effects of immigration on the transition out of unemployment, using state-level immigration statistics. The results suggest that immigration does not affect the probabilities of native-born workers finding a job. Instead, we find that immigration is associated with smaller probabilities of remaining unemployed, but it is also associated with higher probabilities of workers leaving the labor force. This effect impacts mostly young and less educated people.